Consider an investment that pays nothing next year, $2000 in two years, $3000 in three years, and $5000 in four years The expected rate of return is 5 per year What is the current value V 0 of this investment Find the value V 2 at the end of year 2 (immediately after the $2000 payment is made) two differentways by compounding todays value for two years by discounting the final two payments back to year 2

Question: Consider an investment that pays nothing next year, $2000 in two years, $3000 in three years, and $5000 in four years. The expected rate of

Consider an investment that pays nothing next year, $2000 in two years, $3000 in three years, and $5000 in four years. The expected rate of return is 5% per year.

What is the current value V₀ of this investment?

Find the value V₂ at the end of year 2 (immediately after the $2000 payment is made) two “different”ways:

by compounding today’s value for two years

by discounting the final two payments back to year 2

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